Ordnerverwaltung für Financial Reporting and Controlling
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When an investor uses th eequity method to account for investments in common stock, the investor's share of cash dividends from the investee should be recorded as
A deduction from the investor's share of the investee's profits
A deduction from the stockholders' equity account, Dividends to Stockholders.
A deduction from the investment account.
Which of the following does not indicate an investor company's ability to signigficantly influence an investee?
Material intra-entity transactions
The investor owns 30 percent of the investee but another owner holds the remaining 70 percent
Interchange of personnel
Hawkins Company has owned 10 percent of Larker, Inc., for the past several years. This ownership did not allow Hawkins to have significant influence of Larker. Recently, Hawkins acquired an additional 30 percent of Larker and now will use the equity method. How will the investor report change?
A cumulative effect of an accounting change is shown in the current income statement.
A retrospective adjustment is made to restate all prior years presented using the equity method.
No change is recorded; the equity method is used from the date of the new acquisition
Hawkins will report the change as a component of accumulated other comprehensive income
When an equity method investment account is reduced to a zero balance
The investor should establish a negative investment account balance for any future losses reported by the investee
The investor should discontinue using the equity method until the investee begins paying dividends.
Future losses are reported as unusual items in the investor's income statement.
The investment retains a zero balance until subsequent investee profits eliminate all unrecognized losses.
On January 1, Puckett Company paid $1.6 million for 50,000 shares of Harrison's voting common stock, which represents a 40 percent investment. No allocation to goodwill or other specific account was made. Significant influence over Harrison is achieved by this acquisition and so Puckert applies the equity method. Harrison declared a $2 per share dividend during the year and reported net income of $560,000. What is the balance in the Investment in Harrison account found in Puckett's financial records as of December 31?
In January 2017, Domingo, Inc., acquired 20 percent of the outstanding common stock of Martes, lnc., for $700,000. This investment gave Domingo the ability to exercise significant influence over Martes, whose balance sheet on that date showed total assets of $3,900,000 with liabilities of $900,000. Any excess of cost over book value of the investment was artributed to a patent having a remaining useful life of 10 years.
In 2017, Martes reported net income of $170,000. In 2018, Martes reported net income of $210,000. Dividends of $70,000 were declared in each of tbese two years. What is the equity method balance of Domingo's Investment in Martes, Inc., at December 31, 2018?
Franklin purchases 40 percent of Johnson Company on January 1 for $500,000. Although Franklin did not use it, this acquisition gave Franklin the ability to apply significant influence to Johnson' s operating and financing policies. Johnson reports assets on that date of $1,400,000 with liabilities of $500,000. One building with a seven-year remaining life is undervalued on Johnson's books by$140,000. Also, Johnson's book value for its trademark (10-year remaining life) is undervalued by $210,000. During the year, Johnson reports net income of $90,000 while declaring dividends of$30,000. What is the Investment in Johnson Company balance (equity method) in Franklin's financial records as of December 31?
Evan Company reports net income of $140,000 each year and declares an annual cash dividend of$50,000. The company holds net assets of $1,200,000 on January 1, 2017. On that date, Shalina purchases 40 percent of Evan's outstanding common stock for $600,000, which gives it the ability to significantly influence Evan. At the purchase date, tbe excess of Shalina's cost over its proportionate share of Evan's book value was assigned to goodwill. On December 31, 2019, wbat is the Investment in Evan Company balance (equity method) in Shalina's financial records?